Excerpts from NRA Capital report
Analyst: Liu Jinshu
Strong Pipeline of Projects Justifies Upside
|▪ RNAV of up to S$1.238. Our report enhances the existing information set by incorporating estimates for upcoming projects that are pending acquisition. Currently, Hatten Land’s existing projects have a gross floor area of 9.8m sq. ft. and land pending acquisition of maximum gross floor area of 27.5m sq. ft. based on a sales and purchase agreement and a memorandum of understanding announced in February.
Including these assets into our model, we yielded a RNAV of S$1.238 and a fair value of S$0.440 per share, thus representing upside of 57.1% from the compliance placement price of S$0.280.
▪ Leveraging on Malacca’s future growth. The key selling point of Hatten Land is its portfolio of choice sites in Malacca. Most of its sites face the sea, overlooking Pulau Melaka and the Straits of Malacca.
Pulau Melaka is slated to be transformed into a tourism and entertainment hub because of the RM42 billion Melaka Gateway project which will be developed in partnership with Chinese companies. On completion, Pulau Melaka will feature international hotels and an international cruise terminal. In this context, Hatten Land’s projects offer significant upside and hence marketability.
▪ Offers high growth with steady pipeline. Of the four existing projects, one has been completed and another two projects are expected to be completed within 2017. We expect Hatten Land’s revenue to cross the RM 1 billion mark in FY19 or in two and a half years. Profit after tax is in turn expected to grow from RM68.6m in FY16 to more than RM100m in FY18 and RM300m in FY19.
|▪ Overweight (high return / high risk)|
|"On balance, we rate Hatten Land Overweight with a high return / high risk classification. We like the company for its visible pipeline of value-accretive projects. Potential catalysts include any future partnerships with high profile funds or institutions and the completion of on-going acquisitions. We understand that Hatten Land is considering the payment of dividends at the end of each financial year. Assuming a 10% payout ratio, dividend yield is expected to rise from 0.7% for FY17 to 1.5% for FY18."
-- Liu Jinshu (photo)
▪ What are the risks? The risk is if Hatten Land fails to accelerate sales, leaving it with hefty holding costs and slower than expected revenue recognition.
The existing projects range from being 51% to 75% sold. Generally, the higher quantum retail mall units sell at a slower rate while the sales rate of residential components can be as high as 93% for some projects.
Hatten Land’s growth plans may also be derailed if mega-projects such as the Melaka Gateway and the Singapore-KL high-speed rail are delayed. Thirdly, Hatten Land’s shares have a limited trading history and there is the risk that its share price may underperform after trading starts.
Full report here.